Reply
Member
Posts: 16
Registered: ‎11-22-2012
0

Score impact of paying off student loans?

I have a consolidated federal student loan that just switched over to the standard payment plan, more than doubling my monthly payment. The payment amount is not a hardship at all, it's just annoying. The loan rate is 2.75%.

 

I have been working diligently for nearly a year to increase my scores, and as of a few weeks ago all of my scores were finally at or above 640. I would like to be in a position to buy a house next year.

 

I have two credit cards (both Cap One), which I pay in full every month, and these student loans -- that's my entire active credit usage. I have the cash to just pay off the student loans, and would prefer to. However, I am concerned about my FICO scores dropping due to lack of an installment account actively reporting, especially if I go to apply for a mortgage in six months. On the other hand, paying this off would drop by debt-to-income ratio to zero.

 

Am I overthinking the score drop issue from paying these off?

 

Thanks so much!

Community Leader<br> Valued Contributor</br>
Community Leader
Valued Contributor
Posts: 1,299
Registered: ‎06-09-2008
0

Re: Score impact of paying off student loans?

If these are your only installment loans, especially with a relatively thin credit file, you will probably see some score drop.  I don't think it would be drastic, but it's hard to predict exactly what will happen with your score.

 

Since you're definitely in a mode of trying to build more history, if you have more than one tradeline reporting on your consolidated loan, I would just pay off one part of the loan and continue to make payments on the other.  That's the best of both worlds, lower DTI + continuing to show good credit mix and build history.  If that's not an option, I'd say do what feels best financially.  You'll probably recover any lost points as those credit cards age.

Member
Posts: 16
Registered: ‎11-22-2012
0

Re: Score impact of paying off student loans?

Oh, I've got a thick credit report. I've been using credit for 17 years now. The problem was a 2008 bankruptcy, and recovering from that. :smileyhappy:

 

I do like your idea, though. I have two loans on the consolidation. I could just pay off the bigger of the two, and leave the smaller one and it will still report. Great solution, I'll do that!

 

Thanks so much!

Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.
† Credit cards for FICO Score ranges: The score ranges are guidelines based on actual applicant approvals and having a FICO Score in a particular range does not guarantee you will be approved for credit cards recommended in that range.

Copyright ©2001-2015 Fair Isaac Corporation. All rights reserved.   | Terms of Use | Privacy Policy | Sitemap

IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more

FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.